Sable Mining: Significant High-Grade Resource With Upside Potential

In the run up to production
With a compliant resource now at 178.4Mt grading 59.0% Fe, the Nimba iron ore project has firmed up its potential for a large-scale DSO operation, delivering premium lump and fines. The quality of the resource base and proximity to rail links indicate a short lead time and low capital intensity.

Significant high-grade resource with upside potential
Following the upgrade, Nimba’s JORC-compliant resource now stands at 178.4Mt grading 59.0% Fe (cut-off of 40% Fe), with 134.4Mt at 59.4% Fe in the indicated category. Drilling is ongoing with an aim to increase both confidence and size of the resource. The company guides total exploration target at 200Mt. Having secured a mining licence and signed an export decree, Sable Mining Africa Ltd, (SBLM) plans to complete the PFS in Q413. Early met test results indicated that Nimba could produce lump and fines grading c 64% Fe based on crush and screen and up to 68% Fe fines based on the gravity separation. The lump/fines ratio is currently estimated at 24/76%, but is likely to be improved towards the higher lump share.

Near-term DSO project with access to infrastructure
Nimba is c 30km from the 260km-long railway that links it to the deep water port on the Liberian coast. The project’s mining licence complies with the bilateral agreement between Guinea and Liberia and allows for using the railway. We therefore assume that Nimba’s saleable product will be trucked to the railway and then railed to the port. The company believes that both the railway and port have enough spare capacity to support a small-scale DSO operation, which could be launched by end 2015. The project is expected to run at a 5Mtpa ROM rate for the initial three years, producing lump via simple crush and screen, then ramping up to 10Mtpa to deliver both lump and fines using gravity separation. Assuming little infrastructure investment is needed, we expect the project could be launched and expanded at an attractive capital intensity of c US$50-60/saleable tonne.

Valuation: Keeping momentum intact
While Sable trades at a premium to its peer group on an EV/resource multiple (US$2.0/t), we believe this is justified by the quality of Nimba’s resource, its expansion potential and low execution risk. Our preliminary attributable NPV10 of the project is US$356m (£223m), based on the LT benchmark iron ore price of US$1.45/dmtu (CFR China), lump premium of US$0.15/dmtu, US$25/t freight, LoM opex of US$45/t and development capex of US$550m. Our model is based on the indicated resource, with the inferred conversion and further tonnage expansion representing upside potential. In all, Nimba is a promising project and we expect Sable’s stock to remain well supported ahead of the upcoming PFS results.

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